These days, most homebuyers avail of home loans to help them afford their dream home. Homes have become extremely expensive and it is nearly impossible for people to buy a home without external financial assistance. This financial assistance, more often than not, comes in the form of home loans.
It is, therefore, not very surprising that over the last few years, the number of home loan applications that lenders receive each year has grown exponentially. This has led to lenders becoming extra cautious about choosing the right borrowers. From a lender’s perspective, the right borrower is one who will pay loan EMIs on time and does not pose the risk of monetary loses to the lending company. Lenders, these days, assess all home loan applications carefully and if they are even slightly unsure of a borrower’s repayment capacity, they reject their home loan application immediately. Housing loan rejections must be avoided at all cost as they reduce a borrower’s chances of availing of a loan even in the future.
Lenders asses a borrower’s repayment capacity and creditworthiness by analysing their home loan eligibility. Lenders assess an applicant’s eligibility based on several factors, such as their age, income, CIBIL score, etc. If a borrower’s eligibility is low, chances are their loan application will get rejected. The good news, however, is that it is possible to enhance one’s eligibility and increase one’s chances of getting approved for a loan. Read on to know how.
Tips on How to Improve One’s Chances of Home Loan Approval
Let us view below the tips on how to improve your chances of getting approved for a home loan.
Lenders try and understand whether a borrower will be able to repay their loan or not based on many different factors and the most important of these factors is the credit score.
Credit rating agencies around the country assign credit scores to borrowers based on different factors, such as their repayment history, credit utilization ratio, credit mix they have and credit applications they have made.
Borrowers with a clean repayment track record and low credit utilization ratio and those who are not excessively dependent on credit have a high credit score. On the other hand, borrowers who have defaulted on loan repayment in the past or have too much debt usually have a low credit score.
If you want to improve your chances of home loan approval, make sure your credit score is at least 750. If your credit score is below 750, better it first and then apply for a loan.
Note: In India, the terms CIBIL score and credit score are used interchangeably but they are different. All credit rating agencies assign credit scores but TransUnion CIBIL, which is the country’s most popular agency, calls the credit score it assigns to borrowers CIBIL score.
All home loan lenders have strict home loan eligibility requirements. Most lenders calculate home loan eligibility based on several factors, such as the borrower’s age, income, city of residence, etc. Home loan applicants who do not meet their lender’s eligibility requirements get rejected immediately. So, before applying for a housing loan, check if you meet your lender’s home loan eligibility criteria. Apply, if you do. If you do not meet the qualifying criteria, enhance your eligibility and then apply for a loan.
Further, very often, housing loan applications meet with rejection when applicants apply for a loan amount much higher than what they qualify for. Home loan applicants must use a housing loan eligibility calculator to figure out the loan amount they qualify for and apply for this loan amount only or something lower to improve their chances of loan approval.
Reduce Your Debt-to-Income Ratio
The debt-to-income ratio refers to the percentage of one’s income that is going towards repayment of debt. The higher an individual’s debt-to-income ratio, the lower is their repayment capacity.
In general, lenders do not lend money to anyone whose debt-to-income ratio already exceeds 40% of their income. If your debt-to-income ratio is high, pay off some of your debt. This will increase your repayment capacity and also enhance your chances of loan approval.
If you think your loan application will meet with rejection due to reasons such as a low credit score or your willingness or need to avail of a housing loan amount higher than what you qualify for, then you can enhance your chances of loan approval by adding a co-borrower.
When two or more people apply for a housing loan together, lenders assess their combined home loan eligibility. So, for instance, if your home loan CIBIL score is below 750 and you add a co-borrower whose CIBIL score is 800 or above, your lender will check your combined CIBIL score and take that into account while deciding whether or not to extend a loan to you.
Similarly, if your income is low and does not permit you to borrow the amount you wish to borrow, do not worry. Add a co-borrower whose income is good enough to make you eligible for the loan amount you desire. However, do remember to explain to your co-borrower their roles and responsibilities as a co-borrower is as responsible for loan repayment as the primary borrower. Thus, one must take on this responsibility very carefully.
It is not difficult to get approved for a housing loan. However, keeping the things mentioned in this article will not only help a housing loan applicant enjoy quick home loan approval but also allow them to avail of lucrative loan terms and conditions, such as low home loan interest rates, longer repayment tenor, etc.
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